ManTech International Corp (MANT) 2005 Q3 法說會逐字稿

Good afternoon, my name is Richard and I will be your conference facilitator today. At this time, I would like to welcome everyone to the ManTech Third Quarter 2005 Earnings Conference Call. [OPERATOR INSTRUCTIONS].

Thank you. Mr. Cormier, you may begin your conference.

Thank you. Welcome to ManTech International Corporation's Third Quarter 2005 Earnings Conference Call. And we thank you again for joining us today. My name is Joe Cormier, and I am Vice President of Mergers & Acquisitions and Investor Relations. Leading today's call from ManTech are George Pedersen, our Chairman of the Board and Chief Executive Officer; Robert Coleman, our President and Chief Operating Officer; and Kevin Phillips, our Corporate Vice President and Chief Financial Officer.

In our prepared remarks, George will cover industry and budget trends as well as strategic direction for ManTech. Bob will touch on our operational highlights on the quarter, and Kevin will review our financial performance.

Before we begin our discussion, it is important that we remind you that on this call we will make statements that do not address historical facts and thus, are forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to factors that could cause actual results to differ materially from anticipated results, and include the risks and uncertainties identified in our earnings press release under the caption `forward-looking information`.

For a full discussion of these factors and other risks and uncertainties, please refer to the section entitled `Risks related to the Company's business` in ManTech's annual report on Form 10-K filed with the SEC on March 16, 2005, and from time to time in ManTech's other public filings, such as our recent Form 10-Q and Form 8-K. Also, we undertake no obligations to update any of the forward-looking statements made on this call.

Now I would like to turn the call over to George Pedersen. George?

Good afternoon and thank you for participating in today's call. I am very pleased to report another excellent quarter for ManTech International. As you saw from our press release, we continue to drive strong overall revenue growth and exceptional organic growth while maintaining our operating margins. All of this translates into solid earnings per share of $0.39 for the quarter, up 22% on last year's third quarter. Given the record contract awards in the quarter, we are poised to continue our overall growth trends going forward. To touch on the budget situation and political environments, we believe that the Department of Defense appropriation bill will pass prior to November 18. That's the date of the continuing resolution's current deadline. The bill will contain at least $440 billion of appropriation for defense plus $50 billion of supplemental funds. We have a total, that is another supplemental bill that has been submitted by the White House. It contains as much as $20 billion, we don't know what's in that at this point of time. The timing of passages is important to our industry and ManTech in particular as we divide most of our revenue from this appropriation bill.

Future budgets, I'm confident that we will continue to see growth in the next several years, but the double-digit type growth will be confined across fewer agencies and missions within the community. Specifically, critical national security related program and agencies. Given ManTech's position in these markets, we are confidence of our ability to continue to deliver growth in upcoming quarters and years. That said, we have adjusted our top end of our revenue guidance for the year slightly by 10 million, down to 995 million. This is to reflect a lighter flow of ODCs in the last quarter than we previously anticipated and some slight shifting to the write-on contract awards because of delay in passing this appropriation bill. As previously noted, that Department of Defense, the intelligence community, and the Department of Homeland Security, as well as Justice will continue to need more and more contractor support for IT and key technical and analytical services in the coming years. ManTech's strategy is to deliver the highest quality support to this community. To make sure we expand where we are currently operating, as well as penetrate new areas to marketing and eventually more acquisition. As we have now reached the $1 billion revenue threshold, up from 827 in 2004, we have been more focused on moving ManTech to the next tier of competitors. To get there, we will continue to drive strong organic growth and complete significant strategic acquisitions. To that end, we continue to seek out acquisitions and expand our customer reach, whatnot capabilities, places in important geographic locations and augment on our highly technical workforce. We have ample financial capacity to continue to grow both organically into acquisitions as we had successfully proven in the past. We have an experienced team in place to accomplish our goals. As you are aware, Ron Spoehel resigned from ManTech in late August to join a new technology venture. We wish him well in his new endeavor. Upon learning the news, the Board promoted Kevin Phillips to the post of Acting Chief Financial Officer and he has done an exceptional job in his short time in that role. He has leveraged his extensive knowledge of finance in ManTech's operations and structure. The Audit Committee has been conducting a search for permanent replacement and Kevin is one of the candidate. We will keep you appraised of the progress when there is news to announce, but suffice to say we have already interviewed several qualified candidates.

Again, we have strong markets in which we deliver our services. We have excellent relationships with our customers and over 6,000 employees dedicated to our customers (indiscernible). I believe our solid third quarter results demonstrate this profile. We intend to continue executing our strategic plan in support of the nation, our customers, our employees, and our shareholders. We intend to continue our strong growth and with that, I will turn the call over to Bob Coleman. Bob?

Thank you George. As George mentioned earlier, it was another good quarter for ManTech International. Our third quarter revenues came in at 262.4 million with operating margins of 8.3%, which is in line with our guidance estimate. Also during the quarter, we posted record contract awards totaling over 570 million. Approximately 310 million of these awards were classified and could not be publicly disclosed. New business wins accounted for just over 30% of the total awards and we successfully defended the number of our recompete efforts, many of which had been expanded in scope. The successful awards over the past several quarters combined with our continued revenue and backlog growth demonstrates our success in our business strategy, continued demand for our services, and the strength of our customers' budget. Overall revenue growth for the quarter totaled 26.5% with 18.3% coming organically. Our backlog grew to over 1.92 billion, up from 1.7 billion in Q2. The total qualified pipeline stands at over $6 billion with a number of large proposals outstanding and expected to be awarded within the next six to 12 months.

I would like to briefly discuss one of our Department of State recompete efforts as there has been some speculation in the marketplace. We were notified in late August of an unfavorable decision to ManTech regarding the recompetition of one of our longstanding State Department contracts. The current contract generates approximately 25 million in annual revenues and our past performance on this contract has been outstanding. We historically achieved customer satisfaction ratings of 98%, which is extremely complementary, given the contract's worldwide support requirements. ManTech filed the GAO protest in early September alleging numerous violations of the procurement regulation. As a result, GAO issued a stay of performance on the new contract and shortly thereafter the Department of State offered some corrective actions, which do not fully address all elements of our protest. The State Department did agree to leave the state of performance in place, while these issues are resolved and has exercised the next option period on our current contract, which carries us through the end of January 2006. Our contract has another option period that if exercised would extend our work through April 2006. However, we cannot comment or speculate on the likelihood of another extension. ManTech continues to believe that our proposal represents the best value and lowest risk to the Department of State and we eagerly await the re-evaluation of our proposal. I would like to shift gears for a moment and talk about some of the successes we are having supporting other elements of the Department of State. ManTech has a large and important contract to provide computer network defense services to the cyber threat analysis group within the office of diplomatic security. Consistent with our business model and our culture to provide maximum value to our customers, ManTech working in partnership with the State Department developed intellectual property we call Sandstorm to assist with the forensic analysis of the State Department's worldwide network. Using Sandstorm, ManTech and State Department personnel were able to determine that a foreign-based entity was attempting to penetrate a number of Federal agency networks using a new and unique access method. I cannot discuss the details of this event. However, just this afternoon it was announced that the State Department was recognized by the national security agency for their response to this incident as well as excellence in cyber threat analysis and they were awarded the prestigious Frank Rowlett award for excellence in information assurance. We are pleased to have worked with the State Department and protecting national security assets from foreign threats and we look forward to leveraging the sandstorm solution to expand our cyber security work into new customers. Now, moving onto an update on the Gray Hawk integration. If you recall, we completed the acquisition of Gray Hawk in May of this year. Gray Hawk links ManTech's new and expanded capabilities in the area of high-end intelligence analysis and counter-intelligence, C4ISR and modeling insinuations. As we have discussed in the past, our operation and business development efforts have been coordinated since day one. This close alignment has resulted in several contract awards as combined entities such as 35 million five-year Nancy awards announced in the third quarter. Equally important is the Gray Hawk operation has delivered financial results that we expected from our due diligence process. Gray Hawk is a great addition to the ManTech team and we continue to be very pleased with the acquisition and how quickly our cultures have merged. In closing, we continue to execute on our goal of becoming the premier provider of national security solutions within the intelligence, defense, and homeland security related community. We will continue to focus on driving strong organic growth coupled with strategic acquisitions that enhance our capabilities and extend our markets throughout the remainder of 2005 into 2006. With that I will pass it over to Kevin to discuss our financial results. Kevin.

Thank you, Bob, and good afternoon everyone. As George and Bob covered earlier, we are pleased to report a solid financial quarter and continued growth in our operations. As revenues grew to 262.4 million, increasing 26.5% from last year's third-quarter revenues of 207.4 million for an organic growth rate of 18.3% on a pro forma basis. This growth was largely driven by our expanded activities in the intelligence and defense communities, the acquisition of Gray Hawk and continued support of our nation's efforts in Iraq and Afghanistan. Our organic growth is derived from pro forma revenues for the third quarter of 2004 of 221.9 million, which includes third quarter 2004 revenues from Gray Hawk and excludes revenues from MEDI, our environmental operation that was divested in the first quarter of 2005. For the fourth quarter 2005, we will use the same methodology in deriving our organic growth, which yield pro forma revenues for the fourth quarter of 2004 of 237.2 million. We would remind everyone that prior period financial results have been recast for comparative purposes as a result of discontinued operations in (indiscernible), our personal security investigations business that was discontinued in the first quarter of 2005. The contract revenue mix was relatively consistent across most areas in our continuing operations with minor shifts in percentages due to the impact of our fourth-quarter performance of Gray Hawk. Over 79% of our work was performed as a prime contractor and over 98% came from Federal government sources. Defense, intelligence, and homeland security related businesses comprised approximately 95 percent of our revenue. GSA schedule revenue was steady up 39% In the first quarter. The proportion of revenues coming from contracts billed on a time-and-material basis increased slightly to about 66.5% this quarter, while fixed-price contracts were about 10%, and cost-plus contract saw a reduction to about 23.5%. As Bob mentioned earlier, contract awards in the third quarter were over 570 million, reflecting continued focus and success in our national security markets. This strong award activity translated into an expansion of our backlog as of September 30th to 1.92 billion, up from 1.7 billion in the previous three quarters. Funded backlog was 439 million at the end of the third quarter, down slightly from the 462 million reported last quarter. Along with a substantial revenue growth and award activity, we continue to focus on delivering solid margins. Our third quarter operating margin of 8.3% was down 10 basis points from the second quarter, but was up slightly from the average performance over the first two quarters of 2005 and was within the 8 to 8.5% range we had indicated during our last conference call. This continued performance was due largely to our fiscal discipline at the general and administrative line, which continues to decline as a percentage of revenue to 8.5%. This is down 60 basis points from the same period last year. Operating income in the second quarter rose to $21.8 million, up over 24.4%, as compared to $17.6 million for the same period in 2004. Net income from continuing operations was up 27% for the third quarter, up $13 million, which translated into diluted earnings per share from continuing operations of $0.39 per share. This represents 21.9% growth over last year's third quarter diluted earnings per share from continuing operations. The company recognized one-time adjustment of approximately 460,000 in the quarter as a result of certain international (indiscernible). Due to this, our effective tax rate in the quarter was 37.6%, down from 40% in the previous quarters.

Losses from discontinued operations were approximately 1.3 million in the quarter. The operational ramp on MSM's OPM contract continues and I am pleased to report the efforts to sell MSM have made substantial progress in the first quarter. We are extending the probable close date in 2006 allowing interested acquirers time to evaluate MSM operational potentials. This extension will not impact the discontinued status of the MSM operation, nor ManTech's focus on divesting the subsidiary. We expect losses in the fourth quarter from discontinued operations to be similar to or slightly improved over the third quarter.

Turning now to the balance sheet and cash flow, our operations at all level continues to focus on receivables management. We successfully produced day sales outstanding of receivables of 81 days from continuing operations as of September 30, down one day from the second quarter. In addition, revenue growth, operating margin, and our focus on receivables produced operating cash flow from continuing operations of approximately 10 million in the quarter. We used this cash generation to pay down a portion of our debt balance and to build cash. As of September 30, the Company had 13.3 million of cash and 75.1 million of debt, providing net debt of 61.8 million. Our credit facility allows us ample flexibility to continue our acquisitions for ramps to support internal growth.

Depreciation and amortization as well as capital expenditures were about 1% of revenues this quarter and we expect this level to continue in the fourth quarter. ManTech's strong balance sheet, contract awards, operational performance, and market positioning support our outlook for achieving continued growth.

Guidance for the fourth quarter and for the full year 2005 anticipates the continuation of strong trends in our national security business. Again, our guidance does not include the impact of any future acquisitions or divestitures. For the fourth quarter, guidance for revenues is in the range of 266 million to 276 million reflecting a 12 to 15% organic growth rate consistent with the organic growth range the Company has previously anticipated. Guidance for the fourth quarter diluted earnings per share from continuing operations is in the range of $0.38 to $0.42 per share based on weighted average shares of 33.8 million in the fourth quarter. For the year, range of revenue is 985 million to 995 million due to the lower pass-throughs and other direct costs as well as the delays in certain contract awards and delays in ramp up of recently awarded contracts guidance for diluted earnings per share from continuing operations for the year is in the range of $1.51 to $1.55 per share. This is based on weighted-average shares of 33.4 million for the full-year 2005. I would remind everyone that the earnings-per-share for 2005 of $1.51 to $1.55 per share includes a one-time $0.07 gain per share from the divestiture of our ManTech environmental business that occurred in the first quarter of this year.

Fourth quarter guidance includes a 39.2% estimated tax rate, and assumes interest expense for the fourth quarter of approximately $1 million, and expected depreciation and amortization of 2.5 million.

At this point we are also in the process of finalizing our 2006 budget as well as determining the impact of the implementation of FAS123 R will have in our financials beginning January 1 of 2006. We anticipate providing our outlook for the next year in early January 2006 but we feel well positioned in our markets to continue our track record of 12 to 15% organic growth into next year while continuing to provide operating margins in the range of 8 to 8.5%, excluding the effect of FAS123 R.

In closing, to our formal remarks previously made, we're well positioned for continued growth, supported by the financial capacity and flexibility provided by our balance sheet, by the performance of our operations and the opportunity presented by the record amount of contract awards in the latest quarter.

These awards reflect how well we are positioned in growing national security markets. And now we will be pleased to take any questions you may have.

[OPERATOR INSTRUCTIONS]. Joseph Vafi, Jefferies & Co.

I was wondering if you could talk a little bit about, again moving, returning back to some of those prepared remarks that you made on some delays and upcoming awards, and if you could kind of wrap some commentary there, into what you see in tasking activity coming off some of your current contracts, versus the need to do or the need for the Company to win larger new contracts in order to kind of keep your growth rate moving forward?

Joe this is Bob. We do have a large number of bids currently outstanding and a lot of our existing contracts have been extended and, I guess the funding has been provided on an incremental basis. I think that based on the number of proposals which we have outstanding and the still strength of our customers budgets, even going into the New Year, that the outlook is still strong for the quarter and into next year. I think we will easily be able to stay within that 12 to 15% revenue rates that we have targeted.

And then if we kind of look at the guidance, it looks like the band's kind of tightened a little bit, maybe if you could kind of, is up end or the low end the range really kind of focus more on visibility into the business at this point exiting the year and I guess the top end of the range narrowing as well, maybe a function of some of these kind of incremental delays you might be seeing?

This is Kevin Phillips. The top end of the range adjustment is related to some of the delays as well as, the fourth-quarter ODC flow. The prior year's fourth-quarter ODC flow was fairly heavy and we anticipate at some levels increased ODCs in the fourth quarter and that had not occurred. On the revenue wins, from the bottom end, we still are staying at $985 million range. Hope that answers your question.

What we're trying to do is be a little bit conservative here until we see the appropriation bill signed, and as you know they are expecting to do that by the 18th, the time the current (indiscernible) continue. Once we know that that is signed to and delivered, then we will take a look at what we have. But we're just trying to be conservative at this point.

George Price, Legg Mason.

I wanted to just continue to focus on the guidance a little bit, is there any way you could maybe help distinguish the impact in terms of the revenue guidance, in terms of the split between say ODCs and other services that impacted that 10 million well on the top end?

It's Kevin Philips here. A large amount of the decrease in the top end of the revenue is going to be C-based and as a result what we see is slightly higher operating margins in the fourth quarter, because the flow of revenue is going to be generated more from revenue base than we had anticipated. We have got a good quarter of hires and the ODC ploughs (ph) a little bit less than we anticipated and I think that's generating the adjustment on the top end of our revenue, while still providing solid operating margins.

In terms of lowering the top end by 10 million and locking off $0.03 on EPS. I mean it seems like that 10 million, it seems that there is an implied higher amount of profitability in that 10 million than ODCs suggest, am I thinking about that in properly? Going correct I should say?

Yes. What we see is actually a slightly higher operating margin for the fourth quarter for the revenues that was providing and it may be less than a peer pass-through that you're talking about, but I don't believe that I think it is taking a little bit off shelter on that. I think it's the $1.51 to $1.55 that supports the reasonable operating margin given the first you have in revenue.

Okay. And could you just repeat the, I think you gave some guidance around the tax rate. I guess one, if you could elaborate maybe I apologize, if I missed it, elaborate on why the tax rate came in lower in the quarter and what's the tax rate guidance for the fourth quarter?

Tax rate guidance for the fourth quarter that the year is at 39.2%. The adjustment in the third quarter occurred because of a one-time adjustments for international tax deferrals that we were able to report in our tax rate and that was effectively 37.2% for the quarter.

Okay. And then last question if I could. If you could maybe just comment on what you seeing out there in terms of the M&A environment and pricing.

This is George. We will continue to be very active in the M&A market. We are looking primarily for companies and $50 to $100 million band for the obvious reasons. We have ongoing discussions. It is not as easy to find them today as when we began a couple of years ago, but we think there are a lot of good candidates out there and we hope to continue our record of closing one or two more. We have the financial ability to do that.

One or two more in what time frame?

I won't give you a time frame. I am telling you -- I will talk -- based upon our financial capability, we like to target one or two more. As you know well, you can. We have conversations ongoing. They could close tomorrow, they could take another three months, six months.

Fair enough. Thank you.

Gautam Khanna, SG Cowen.

Can we talk about the cash flow statement a bit? I guess cash flow year-to-date is a little light. Is there anything you are doing just to bring the DSOs down that you can talk about and what you think the kind of longer-term DSO targets can be?

The DSO is of 81 days. We certainly have an objective to get 80 days and below. The two main operating cash flow was positive. We expect in the fourth quarter based on the current information we have, operating cash flows in excess of 15 million. I think that the third and fourth quarter operating cash flows are good indicators of the trend. In addition, our transition of unbuilt receivables to build receivables in the third quarter is fairly high. I think we transferred over 25 million. So, we are making progress and I think it's going to show, be reflected in our DSOs, but for now, we still have an objective of 80 days still -- that's 80 DSO.

80 days.

Yes.

Also you mentioned the State Department work was awarded 15 as to whoever it was, what indications do you have from the customers as their positive (indiscernible) on the phone here. What indications they have from the customer as to their intentions? I mean, have they said they are going to go back and result is that the entire procurement, is this something that we could expect will delay for another quarter or so, or is this something that you expect to be lighter than quick order?

Obviously, we can't get into a lot of the details behind the protests. However, let me just tell you. This was a performance-based contract and we believe it was one of the first such contracts that this agency has done. And if you're familiar with those procurements, they are a little bit more complex and involved than others. Our issue with this is, we do not believe they followed the process according to the way it was outlined in the solicitation. We filed a protest based on that. As I stated, the State Department has agreed to take corrective action in a few areas. However, that is not enough to satisfy all elements of our protests. So, we're continuing to work this with GAO and State Department. That's all I can tell you.

John Mahoney, BB&T.

I will turn a little back to the contract, did you mention it was $25 million of annual revenue run rate right now?

Yes, it is.

It extends through the end of January and I guess, the other extension, which you don't have in hand that is through April, the end of April?

Correct. There is no other option on the contract that would take us through April '06.

For all the listeners, could you explain the performance-based contracts and they're awarded to somebody else, I would assume then they were -- although you have a 90 -- definitely, I am having a difficulty understanding, if you had a 98% rating with the agency, why would they award it to somebody else?

You understand the basis for our protest now. Again, I think this organization has historically relied on a lot of GSA schedule type contracts and this is one of the first performance-based contracts they have done, and I think there's just some issues with the way it's been implemented and communicated within the organization.

Have you given any indication of what the FAS 123 impact could be on the company?

We're not providing that right now. We are going to the process of evaluating it and we will provide it to you when we provide the 2006 guidance.

Don Lecovo (ph), Adams Harkness.

I have a few questions here that haven't been asked. As far as the open positions and turnover, I know you generally don't comment on turnover, but could you comment on how it compares to the last few quarters and can you talk a little bit about how many open positions you have and your recruiting efforts, something around that?

Sure. Obviously, our turnover is a little higher than we like. It's running about 20% and a lot of this is due to the churn we get with the number of overseas assignments that we have and the requirements for travel within that area. Also, some of it's related to the cleared work force that we have and the fact that our people are prime targets for other contractors. We currently have 437 open requisitions. In the month of October, we actually had quite a few more hires than we had historically and this is the result of some very aggressive recruiting campaign that we have put in place and we are starting to see the benefit from that.

And then I guess, as far as prime contract work, I know this is sort of a 79% in this quarter versus 83% last few quarters. I guess, I was (ph) under the impression that with the addition of Gray Hawk, that number will at least stay the same, maybe improve from 83%?

It's Kevin Phillips. Gray Hawk performs a larger amount of work as a subcontractor and that is pretty consistent with what we would expect given their revenues for the quarter.

Are you breaking out how much did Gray Hawk contributed in the quarter?

Gray Hawk contributed over $22 million of revenue for the quarter.

Okay Great. Thanks, guys.

Erik Olbeter, Stanford Financial.

Yes, I think (indiscernible) my call as well. Actually question on new re-competes coming up this quarter. Can you give some update on that?

In terms of re-competes for the quarter, I can't do you specific information on that. I will tell you this was a much heavier year for us in terms of re-compete efforts and an a lot of that like I said is due to not only the contract I mean, but putting the ceilings on existing contract. We are very pleased with our re-compete win rates to date. One of our business units is just 14 out 14 of the re-competes and obviously, we haven't grown in the (indiscernible) on State Departments. We are optimistic about our future in this area because the customers we deal with are of best value and past performance-type customers. They don't bid on low cost or don't award on low cost. So, we are pretty comfortably with our position and the success we will have on our re-competes.

Just final question. Can you try and characterize the new wins. I mean the new win number is really eye-popping and congratulations on that. Are most of these functions you are seeing IDIQs, DPIS, I don't think you pull that one, and your press release talked about $200 million award over 10 years. What kind of constancy you see in most of the past quarters or are we seeing more IDIQs? Can you give a little bit of color?

This is Kevin Philip. These are not primarily IDIQ contract awards. These are competitive awards that we are winning. They may be cost plus, they maybe PNM , but they are very specific to the levels what the customer has and the competitive environment. I don't have the exact mix of how much was cost plus PNM, but these aren't IDIQ based contracts. These are competitive awards.

By and large these customers have the funding and they know where the funding is coming from as opposed to the environment where they put out the IDIQ in anticipation. This is a little bit different customer than the IDIQ customer.

That's very helpful. Thanks very much guys.

[OPERATOR INSTRUCTIONS]. George Price, Legg Mason.

Had a couple of follow-ups. First, maybe you could comment on the bracket impact to work at 3-COM, how 3-COM, if any there is upper frequency?

We don't see an impact coming from the bracket 3-Com. Most of the programs we have there has been identified as to the contractual mechanism that they will use going forward. As you know, some of those activities have been spread around to the other customers and we just don't see a downside impact for us as a result of that bracket.

George, we do have as you are probably aware, we have a number of contracts supporting 3-Com and one of those contracts is coming to recompetition. However, it has been recently announced that we will receive a sole source extension on that per year.

Can you tell us how big that contract is?

I don't think we typically give out that type of information, but it is a significant contracts for us. It covers, it's the regional support centers overseas. That's the support we provide in Afghanistan, Iraq, Bosnia, Kosovo, Italy and other places and we have an outstanding past performance record on that contract and as I mentioned, the customer is very happy with it and is currently putting a sole source extension in place for that.

This is Kevin. So, because of the size it is over 14% of our revenues. So, it is an important component for us, so you need to be aware of that.

I think it's also important to understand that those services are not provided all at New Jersey, indeed very few of the services are provided there. So, the actual break of that facility doesn't impact us perhaps as it does others who are located there.

Okay. That sole source is (indiscernible) years, that takes you through government fiscal calendar?

It takes us through '06. However, the delivery orders on that contract has historically run well past the contract date if that make sense. It's hard to explain, but the contract actually ended in February '05, however, the delivery orders went through February '06. We are now looking at a one-year full source extension on the base contract and of course our expectation is that the delivery orders will carry beyond that.

It could go well into '07.

The 200 million 10-year contract, was that new business or was that a re-compete?

It's a re-compete of a long-standing relationship we have with that customer. It's a classified customer base.

And that was the contract that you referred to last quarter that, an Intel contract that was delayed?

No, that's not the one. That's a different contract. I do want to point out that the scope of work on that contract has expanded pretty significantly on it.

On the one that you have in the press release --?

The $210 million, the one that we just won, correct, that we announced.

What about the one that you mentioned last quarter?

We expect that to be awarded in Q4.

Gray Hawk contributed roughly about 200 million to the backlog rate, so that happened last quarter right?

The backlog from Gray Hawk is consistent in terms of its dollar value.

That went into the 1.7 billion last quarter, right?

Correct.

Neal Weissner, Stevens, Inc.

Can you guys talk a bit about the disconnect between the increase in total backlog and a decline in funded backlog for the quarter?

On the funded backlog, a lot of that is incremental funding that we did based on continuing and getting short-term funding, and some of that may be related to continuing resolutions. It's not a large number and we're not too concerned about that but it's more specific to incremental funding where we see it.

Was there any additional capital investment in NSM for the quarter, if so how much?

No capital investments.

[OPERATOR INSTRUCTIONS]. John Mahoney, BB&T.

Given the very large number of awards in the quarter with nice returns from last quarter, is there a possibility that, the timing issues that are going on with it, I know it being discussed, that you might be able to -- what impact you might be able to grow right through that impact, if you do that late first quarter? You could still see some organic growth?

You are talking about the fourth quarter or '06?

Throughout '06. We still have a kind of 16% target I think. (indiscernible) what we just enjoyed or you enjoyed, you will be able to grow right through that.

The 12 to 16% that we provided you assumes that that competition goes -- that we do not get any revenue after January. Now there are a lot of variables obviously in the 12 to 15% range for '06 and we will have more visibility when we give you guidance. But the 12 to 15% does extend to the end of January that goes away.

We do have a large number of proposals outstanding, that obviously we will influence our outlook into '06.

That does conclude our question-and-answer session for today. At this time for any closing or additional remarks, I'd like to turn the call back over to Mr. Cormier.

We just appreciate your support and look forward to speaking with you again on the next conference call.

Thank you for your participation in today's conference call. This call will be available for replay beginning at 9 p.m. this evening, through November 17. To access the replay please dial 1-888-203-1112 for domestic calls; dial 719-457-0820 for international. Once again, that is 888-203-1112 and for international 719-457-0820. And please reference the passcode 8849087. This concludes our conference call for today. Thank you for your participation.